This
year, the real estate industry in India is set to undergo major transformation
with the implementation of the Real Estate (Regulation and Development) Act
2016 (RERA). Another significant change is the implementation of the Goods and
Services Tax (GST) from July-17. GST is the biggest tax reform post
independence.
It
is clarified by govt that GST will be applicable from 1 July 2017. GST rate for
under construction property is 12% for the amount paid on or after 1st July 2017.
Considering this many builders advised their flat purchasers to pay major
portion to save in GST.
Exactly how does
GST impact the real estate in India? Let`s analyse that.
Presently
work contract Tax as per Gujarat VAT is 0.60% and Service Tax is 4.5%. So one
will be able to save 12% minus 5.10%, which is a major saving. Therefore government
issued a press release to clarify that even if the GST is collected 12% post
1st July, the developer will have to pass on the input credit which will
ultimately reduce the tax burden in the flat purchasers. Otherwise, u/s 171 of
the GST Act, it will be considered as profiteering and necessary actions will
be initiated.
A
question arises, whether flats which are for resale or sale of plot of land or
flats which have received Occupation certificate or completion certificate is
liable to collect or pay GST. Answer is no GST is payable as it becomes an
immovable property.
Let us analyse the reasons and provisions under GST.
First
of all let us see what is movable and what is immovable. Both the definition
has not been defined in the act. So we have to take reference of various case
laws that we have in excise regime that have defined movable. Like Supreme
Court in case of Municipal Corporation of greater Mumbai held “if article can
be moved to another place as such without any dismantling then it is movable”.
In
Sirpur Paper Mills Ltd. [1998 (97) ELT 3 (S.C.)] apex court held that “if a
machine is embedded to the earth only to ensure wobble-free functioning, that
would not be considered as immovable”. And we know everything which is not
movable is immovable.
Definition
of goods as per GST act says that “goods mean every movable
property other than money and securities but includes actionable claim, growing
crops, grass and things attached to or forming part of the land which are
agreed to be severed before supply or under a contract of supply”, so it is
clear that goods does not include immovable property.
But
definition of service in the same act says “Service means
anything other than goods, money and securities but includes activities
relating to the use of money or its conversion by cash or by any other mode,
from one form, currency or denomination, to another form, currency or denomination
for which a separate consideration is charged”
Looking to both the definition one can conclude that definition of service includes Immovable property.
But
will tax be levied on sale of immovable property? is our question.
Now
let’s see scope of supply as GST is levied of supply of goods or services or
both.
Section
7 of the GST Act says supply include all form of supply of goods or
service or both such as sale, barter, exchange lease, renting etc. and also
include activities specified as supply of goods or supply of service as per
schedule II GST act.
But
section 7 does not treat activities listed in schedule III of the GST act, as
supply of goods or services or both.
As
per paragraph 5 of schedule III activities or transaction relation to
sale of land and subject to clause b of paragraph 5 of schedule II, sale of
building shall not be treated as supply.
Clause
b of paragraph 5 of schedule II reads as “construction of a complex,
building, civil structure or a part thereof, including a complex or building
intended for sale to a buyer, wholly or partly, except where the entire
consideration has been received after issuance of completion certificate, where
required, by the competent authority or after its first occupation, whichever
is earlier”.
Now
it is quite clear that sale of land will not attract GST and sale of building
after obtaining completion certificate or after its first occupation will not
attract GST. Sale of building before its first occupation or before issuance of
completion certificate will be taxed under GST, and shall be treated as supply
of service.
Thus,
no GST is applicable on resale of the flats, on completed flats having Occupation
Certificate or Building Completion Certificate which is popularly known as BU
permission. All under construction flats which are sold by the builder or
resale of under construction flats when the balance amount is payable to the
builder, GST is payable as and when such demand is raised by the developer.
